Michaël van de Poppe - 23 March 2022
Cryptocurrency: an easy understanding
Many of us know that the first decentralized cryptocurrency that graced our world is Bitcoin, back in 2009. How many of you know where it first started, how it actually works and the definition of cryptocurrency.
This is the first article on our Educational Blog and we are really excited to take you on this ride. Some things you might know about, some things you might not. Wherever you stand in the crypto world we will be there. Now let’s get on to the fun part with the introduction of cryptocurrency!
Cryptocurrency: Its meaning
Apart from knowing that many people are joining the crypto world. Did you ever stop to think about what cryptocurrency is? As in, its definition.
We will give you the simplified version since that makes things a little easy. Cryptocurrencies are a type of currency that uses digital files as money. Let’s explain a little more, it is a digital value that is only available in electronic form and can be exchanged online for goods and services.
Let’s elaborate even further. Not all these currencies are a means of payment (an actual currency). The reality of cryptocurrencies is most of the tokens (apart from Bitcoin) are far from just a currency. This leads to defining cryptocurrencies as digital assets.
Another great aspect to touch on is the beauty of the cryptocurrency structure. In short, it is decentralized, which allows it to be free of control from governments and central authorities. Now that the definition is out of the way, let’s take a look at the history of cryptocurrency.
History: how it started
Did you know that there were attempts at creating cryptocurrency way before 2009? It initially was published as an idea in a paper in 1983, by a man named David Chaum. He named it Ecash and defined it as anonymous electronic money. He later implemented it in 1995 through Digicash.
Digicash was considered an earlier form of cryptographic electronic payments. It worked by requiring user software to withdraw notes from a bank by implementing encrypted keys in order to be sent to the recipient. This way of transfer made it untraceable for banks, the government or any third party. Unfortunately, Digicash went bankrupt in 1998.
In comes the year 2009, the year everyone knows of the creation of Bitcoin. It is the first decentralized cryptocurrency, created by a developer that used a fake name, Satoshi Nakamoto. Now we must wonder why did Satoshi create Bitcoin?
2009 was a year of the financial crisis. The first block that was created was called the Bitcoin Genisis block. If you are curious to dive more into how this block works, you can read more here. This was the beginning of the Bitcoin chain, which inspired many other coins to be created. Let’s roll into understanding how it all actually works.
The Blockchain: How it works
Cryptocurrency works on a blockchain. A blockchain is the core of the crypto space. The first factor to understand is that the blockchain is decentralized, which means no third party can be involved.
The data in the block is stored globally across a network of nodes, which makes it extremely hard to tamper with. This decentralized database makes it difficult to tamper with, allowing for security to be kept. Theoretically, tampering can happen, but practically it is impossible.
To go a little deeper in understanding. Blockchain allows the information to be recorded and distributed but doesn’t allow for any of the information to be edited. It sets it as the foundation for transactions that can’t be altered, deleted or destroyed. It is made up of records that are set up in blocks and linked by cryptography ( secure connection).
To wrap things up, it is good to differentiate between digital assets and cryptocurrencies. A digital asset is non-tangible created, traded and stored in digital form. When we place it in the context of blockchain it includes cryptocurrencies and crypto tokens.
Cryptocurrencies and tokens are parts of digital assets that use cryptography which makes them a native asset of blockchain.
Whether you are new to crypto or need to brush up on some understanding, we hope this first article block in our Crypto101 has given you a little more understanding.